Case Summaries

In 2009, the plaintiff bought two multi-peril crop insurance policies (one for each of the plaintiff's two farms) that the defendant reinsured through the federal crop insurance corporation (FCIC).  The policies each provided a tobacco crop yield guaranty which guaranteed a minimum yield at $1.85/lb.  The plaintiff's 2009 tobacco crop harvest did not meet yield and quality expectations and the losses were reported to the defendant as attributable to plant disease.  The policy paid on one of the farms, and after an investigation, the defendant attributed losses on the other farm to various diseases and adverse weather conditions.  The defendant made a final decision with respect to this policy that no indemnity payment was due because the plaintiff failed to timely harvest the crop and failed to purchase and apply the proper fungicides.  The defendant also found that the plaintiff had inadequate barn space to cure all of its tobacco, which led to the untimely harvesting resulting in deterioration of the crop in the field.  The plaintiff sought mediation and administrative review, but mediation did not resolve the matter.  The defendant issued a revised final decision again finding that the lack of timely harvest and the failure to purchase and apply the proper fungicides contributed to the loss.  The revised decision recalculated the production lost due to uninsured causes, but the result remained that no indemnity would be paid.  The plaintiff sought administrative review, which resulted in a finding that there were both insured and uninsured losses, and the matter was remanded the matter for a calculation of the final indemnity amount.  The plaintiff appealed the matter to the defendant's National Appeals Division (NAD) and requested a hearing.  The result of the NAD hearing was that the outcome remained unchanged.  The plaintiff sought director review of the NAD decision, which upheld the NAD decision.  From the director review of the NAD decision, the plaintiff appealed for judicial review.  On review, the court determined that substantial evidence did not support the NAD Director's decision that plant disease did not contribute to the plaintiff's crop losses.  The court determined that the NAD Director failed to explain how the plaintiff's failure to timely harvest undermined the plaintiff's claim that the tobacco crop suffered from plant disease.  The court reasoned that plant disease and untimely harvesting are not mutually exclusive causes of loss.  The court denied the defendant's motion to dismiss and remanded the matter to the defendant to determined whether there is evidence that the plaintiff's crop suffered from plant disease and whether any disease entitled the plaintiff to an indemnity payment and whether proper methods were used to calculate the indemnity payment.  J.O.C. Farms, LLC v. Rural Community Insurance Agency, Inc. et al., No. 4:12-CV-186-D, 2015 U.S. Dist. LEXIS 124266 (E.D. N.C. Sept. 17, 2015).     


An IRS Form 2848 named three representatives to represent the taxpayer with the IRS. One of the representatives had not signed the form and another representative signed the form on that representative's behalf.  The IRS determined that the third representative had not been duly appointed.  The representative signing on the third representative's behalf simply signed his own name and did not indicate he was signing on the other party's behalf.  In addition, Form 2848 Section 5(a), Part I did not provide that representatives had the power to appoint another representative.  C.C.A. 201544024 (Sept. 16, 2015). 


The petitioner gifted cash and marketable securities to her three daughters on the condition (pursuant to written net gift agreement) that the daughters pay any related gift tax and pay any related estate tax on the gifted property if the petitioner died within three years of gifts.  The petitioner deducted the value of the daughters' agreement to be liable for gift or estate tax from value of gifts and IRS claimed the gift tax was understated by almost $2 million.  Each daughter and the petitioner were represented by separate counsel and an appraisal was undertaken using mortality tables to compute the petitioner's life expectancy which impacted values as reported on Form 709.  The IRS' primary argument was that the daughters' assumption of potential estate tax liability under I.R.C. Sec. 2035(b) did not increase petitioner's estate and, as such, did not amount to consideration in money or money's worth as defined by I.R.C. Sec. 2512(b) in exchange for gifted property.  The court determined that the primary question was whether the petitioner received any determinable amount in money or money's worth when the daughters agreed to pay the tax liability.  The court held that the petitioner did receive determinable value as to the gift tax.  Likewise, the court held that the assumption of potential estate tax liability may have sufficient value to reduce the petitioner's gift tax liability.  The court determined that it was immaterial that it was an intrafamily deal at issue because all persons were represented by separate counsel.  However, the court determined that fact issues remained for trial on the assumption of estate tax issue. Steinberg v. Comr., 141 T.C. No. 8 (2013).  In the subsequent opinion on the estate tax issue, the court held that the fair market value of the gifted property for gift tax purposes was reduced by the value of the daughters' assumption of the potential I.R.C. Sec. 2035(b) estate tax liability.  Steinberg v. Comr., 145 T.C. No. 7 (2015). 

 


Under I.R.C. §170(f)(8), a taxpayer claiming a charitable contribution deduction exceeding $250.00 must substantiate that deduction with a contemporaneous written acknowledge from the donee, showing the amount of the contribution, whether any good and services were received in return for the donation and a description and good faith estimate of any goods and services provided by the donee or that the donee provided only intangible religious benefits.  However, I.R.C. §170(f)(8)(D) says that the substantiation rules don’t apply if the donee files a return including the contemporaneous written acknowledgement information that the taxpayer was otherwise supposed to report.  This provision allows taxpayers to “cure” their failure to comply with the contemporaneous written acknowledgement requirement by the donee exempt organization filing an amended Form 990.  However, without any regulations, the IRS has taken the position that the statutory provision does not apply.  Apparently believing that their position was weak and would not be supported judicially, the proposed regulations acknowledge the exception and allow the charitable organization to file a form (yet to be announced) on or before February 28 of the year after the year of the donation that shows the name and address of the donee, the donor’s name and address, the donor’s tax identification number, the amount of cash and a description of any non-cash property donated, whether the donee provided any goods and services for the contribution, and a description and good faith estimate of the value of any goods and services the donee provided or a statement that the goods and services were only intangible religious benefits.  The form must be a timely filed form and cannot be filed at the time the taxpayer is under examination, and a copy of the form must be provided to the donor.  REG-138344-13 (Sept. 16, 2015); Prop. Treas. Reg. §§1.170A-13(f)(18)(i-iii). 


Before filing bankruptcy, the debtor created a self-directed IRA and upon later filing bankruptcy the debtor listed the IRA as an exempt asset under 11 U.S.C. Sec. 522(d)(12) and valued it at $180,000.  Before filing bankruptcy, the debtor and his wife created a partnership in which they each owned a 50 percent interest.  The partnership was created for real estate development purposes and complemented the debtor's construction business.  The partnership agreement provided that the IRA would contribute capital and a cash contribution to the partnership.  Ultimately, the IRA funded the purchase price of properties the partnership acquired and a deed conveyed a tract to the IRA.  The IRA later paid for development of a tract.  The debtor and the partnership filed bankruptcy, and the partnership listed both the debtor and the IRA as unsecured creditors.  The trustee and a bank objected to the claimed exemption for the IRA on the basis that the IRA had engaged in a prohibited transaction that caused it to lose its tax exempt status.  The bankruptcy court agreed that the IRA was not exempt, and the court affirmed on appeal.  The IRA engaged in prohibited transactions with disqualified persons by loaning funds to the partnership.  In re Kellerman, No. 4:15CV00347 JLH, 2015 U.S. Dist. LEXIS 122046 (E.D. Ark. Sept. 14, 2015).   


The parties entered into a contract involving the removal of chicken manure from egg-laying facilities.  Under the contract, the plaintiff agreed to pay the defendant for the transfer of manure ownership with tonnage to be tracked and billed according to the quantities listed on a manure management manifest.  The specific quantity of manure was to be determined by and mutually agreeable to both parties.  A dispute arose and the trial court denied the plaintiff's motion for preliminary injunction, concluding that the plaintiff did not prove by clear and convincing evidence that it was likely to prevail on its claim of breach of contract because it failed to prove that the contract required the defendant to provide any specific amount of chicken manure.  Ultimately, the trial court returned a verdict for the plaintiff.  On appeal, a primary question was whether the contract was a goods contract (sale of chicken manure) governed by the Uniform Commercial Code (UCC) or one for the sale of services (removal of chicken manure) governed by state (OH) common law.  The appellate court determined that the contract was one for the sale of goods - the transfer of manure ownership.  Thus, the contract was one for the sale of goods - chicken manure.  Supporting this finding, the court noted that the plaintiff did not bargain for any services to be provided by the defendant.  Instead, the plaintiff was responsible for the removal of manure which it would then resell and spread.  As such, the plaintiff's ultimate goal was to acquire a product rather than to procure a service.  As a contract subject to the UCC, the plaintiff argued that it was enforceable because it provided a sufficient quantity term ("all available tonnage per year of manure") or that it was a requirements contract.  The court determined that the contract was not a requirements contract because the contract was for the sale of the output of manure rather than the manure requirements of the plaintiff, and nothing in the contract barred the defendant from selling manure to another party or preclude the plaintiff from buying manure from another seller.  On the quantity issue, which is critical for the contract to be valid under the UCC, the court noted that the parties bargained to reserve quantity for the future agreement of both parties in accordance with future negotiations.  Thus, the contract did not contain an enforceable quantity term as quantity was subject to future agreement, and the contract was unenforceable as a matter of law.  As such, the appellate court reversed the trial court and remanded the case.  H & C Ag Services, LLC v. Ohio Fresh Eggs, LLC, et al., No. 6-15-02, 2015 Ohio App. LEXIS 3615 (Ohio Ct. App. Sept. 14, 2015).


The plaintiffs, a married couple, claimed that the defendant, an oil and gas company, failed to pay a lease bonus payment of $144,000 that the parties had agreed to.  The defendant delivered a "letter agreement" to the plaintiffs stating that the parties would execute and additional "Option to Exercise Oil and Gas Lease" and that the defendant would pay $100.00 per mineral acre and a 1/8th mineral owner's royalty with a primary term of four years.  The plaintiffs did not execute the letter agreement or the additional option agreement.  A final contract with different terms was ultimately entered into that stated that it became effective when the oil and gas lease described in it was approved and on approval of title.  Ultimately, the plaintiffs claimed that the defendant breached the lease and the letter agreement when it did not pay the bonus payment of $100/acre.  The plaintiffs also claimed that they incurred over $15,000 of expenses in clearing title defects and confirming marketable title and that by obtaining the recording the lease the defendant blocked the plaintiffs from entering into agreements with other potential oil and gas companies.  The defendant motioned to dismiss on the basis that no contract was formed between the parties.  The court agreed with the defendant on the basis that there was never any offer that the plaintiffs accepted and that there was no meeting of the minds on all points that left nothing for negotiation.  The court noted that there was no evidence that the plaintiffs accepted the letter agreement and the facts did not support an inference of acceptance.  Instead, the negotiations over several months resulted in a lease with a different party (the plaintiffs' farming operation) with different terms.  The plaintiffs never executed the agreement and the facts did not support the argument that the letter agreement had been incorporated into the parties' final contract.  there simply was no mutual manifestation of assent as to key contract terms.  The option agreement also never materialized.  Norberg, et al. v. Cottonwood Natural Resources, LTD, No. 8:15CV71, 2015 U.S. Dist. LEXIS 122057 (D. Neb. Sept. 14, 2015).


The plaintiff, a global agribusiness company that produces agricultural chemicals and seeds, had one of its genetically-modified corn traits approved for sale in the U.S. and other countries.  However, the Chinese had not been approved the trait for import, and they rejected the import of all U.S. corn in the fall of 2013.  Exporters, handlers, elevators and corn farmers claimed that the company's marketing of the trait before being accepted in China caused the market price for corn fall from mid-2012 to late 2014.  In late 2014, the various lawsuits were consolidated into multi-district litigation in Kansas federal court.  The lawsuit asserted that the company violated the Lanham Act by misleading stakeholders, the public and federal regulators concerning the status of the trait and its release into the marketplace.  The suit also alleged that the company breached a duty of care by the premature commercializing of the trait without necessary safeguards and by instituting a program that ensured the contamination of the U.S. corn supply.  The company filed various motions to dismiss the numerous claims.  The court dismissed claims based on an alleged failure to warn to the extent based on a lack of warnings in materials accompanying the trait because those claims were preempted by FIFRA; trespass to chattels claims (except those claims filed in Louisiana); corn farmers' claims for private nuisance, Lanham Act claims and claims under the Minnesota consumer protection statutory provisions.  Not dismissed were negligence claims based on a legal duty exercise reasonable care in the manner, timing and scope of the commercialization of the trait.  In re Syngenta AG MIR 162 Corn Litigation, No. 14-md-2591-JWL, 2015 U.S. Dist. LEXIS 124087 (D. Kan. Sept. 11, 2015). 


Confirmation in this Chapter 12 case was delayed  until the U.S. Supreme Court ruled in Hall, et ux. v. United States, 132 S. Ct. 1882 (2012) on whether post-petition taxes are dischargeable.  The court later determined that they were not estate obligations that could be treated as unsecured claims. The debtors reorganization plan was then submitted that proposed paying post-petition taxes through the plan with estate assets.  Confirmation was denied and the case converted to Chapter 7.  The debtors' real estate and equipment were sold and a Chapter 7 discharge was received. A junior secured creditor filed a motion for marshaling of assets. The bank held a first mortgage on land, a first priority lien on equipment and a first priority lien on crop proceeds and the creditor held a second priority lien on equipment and crop proceeds and no junior mortgage on the real estate.  There were insufficient funds in the debtors' bankruptcy estate to pay all claims and the IRS asserted a  claim for priority taxes.  If marshaling were denied, it would allow more non-tax debt to be paid and the debtors claimed that allowing marshaling would inhibit the debtors' fresh start.  The court noted that the “inequity” of another creditor receiving less or nothing is not a valid reason to deny marshaling.  Accordingly, the requirements for marshaling were satisfied.  The motion to marshal assets was granted because the real estate had been sold and, the court held that the fact that a creditor’s receipt of a portion of the sale proceeds would prevent the IRS debt from being reduced was not grounds to deny marshaling which, the court noted, prefers interests of the junior lienholder.  The court ordered that a hearing was to be held to address the issues of distribution, including trustee compensation.  In re Ferguson, No. 10-81401, 2013 Bankr. LEXIS 3386 (Bankr. C.D. Ill. Aug. 20, 2013).  On further review, the court reversed.  The court determined that the bankruptcy court mistakenly looked to the conditions present at the time of the original marshaling request to determine whether to allow marshaling.  Instead, the appellate court determined that the elements that permitted marshaling no longer existed because the crops and equipment had been sold with the proceeds of sale paying the priority lien.  Ferguson v. West Central, FS, Inc., No. 14-1071, 2015 U.S. Dist. LEXIS 121096 (C.D. Ill. Sept. 11, 2015).


The decedent executed a will in 1992 that left his multi-million dollar estate, after payment of debts and taxes, to his wife if she survived him.  If she did not survive the decedent, the will specified that the decedent’s estate was to be equally divided between his two granddaughters in trust for any of the two granddaughters that had not reached age 30 at the date of the decedent’s death and outright to any of the two granddaughters that had reached age 30 at the time of the decedent’s death.  If the decedent’s wife pre-deceased him, then the share passing to any of the granddaughters that also predeceased him would pass to that granddaughter’s children or the surviving granddaughter if there were no surviving children.  If the spouse and granddaughters did not survive and there were no surviving great grandchildren, the decedent’s estate was to pass to a specifically identified veterinarian.  The will did not mention the decedent’s son.  At the time of the decedent’s death, only the granddaughters survived, and they were both over age 30.  Within two weeks of the decedent’s death, the executor filed a petition to probate the will and start estate administration.  Interested parties were provided copies of the will and publication of notice to creditors was made in accordance with state (KS) law.  At the subsequent hearing, the magistrate judge admitted the will to probate.  The son did not attend the hearing.  About six weeks later, the son filed a petition to set aside the order admitting the will to probate, and a year later the trial court rejected the son’s petition, except that the court found that the will was not self-proving and that no evidence had been submitted from the will’s witnesses.  Thus, the magistrate’s order was set aside and a new hearing scheduled.  The subsequent hearing resulted in the will being admitted to probate.  A trial ensued on the son’s challenges to the will, resulting in the court finding that the will was valid and that the property should be distributed to the granddaughters.  On appeal, the court affirmed.  The court rejected the son’s claim that the will failed because it didn’t describe how the estate should be distributed to the granddaughters and, thus, the bequest failed resulting in an intestate estate that passed entirely to him.  The bequest was neither conditional nor unenforceable.  The court also rejected the son’s claim that a 1997 will superseded the 1992 will.  However, the court determined that argument was sheer speculation and that the existence of a 1997 was not proven.  In addition, even if such a will existed, it would not automatically revoke the 1992 will.  The son’s procedural attacks on the validity of the will also failed.  The court held that the lack of obtaining an order from the trial court confirming the initial hearing date was not fatal and that filing the petition to probate the will was sufficient to avoid the six-month time bar.  While the filing of the affidavit of service did not occur until after the hearing to probate the will, such late filing, the court held, does not operate to bar the will from admission to probate.  The son received actual notice of the hearing.  Accordingly, upheld the trial court’s order admitting the will to probate and the ordering of the distribution of the estate to the granddaughters.  In re Estate of Rickabaugh, No. 111,389, 2015 Kan. App. LEXIS 61 (Kan. Ct. App. Sept. 11, 2015).


The petitioner defaulted on a car loan in 2005 with the car also being repossessed that year.  After the car was sold, an unpaid balance remained on the loan.  The lender submitted the account balance due to five collection agencies over several years to collect.  However, the balance due on the loan was not able to be collected.  In 2011, the lender wrote cancelled the debt and issued Form 1099-C to the petitioner in 2011.  The petitioner had moved, however, and the 1099-C was returned as undeliverable.  The petitioner did not report the income from the discharged debt on the 2011 return.  The IRS received a copy of the 1099-C and sought to collect the amount from the petitioner as income that should have been reported on the 2011 return.  While the petitioner argued that the income wasn't reportable due to the lack of receiving Form 1099-C, that argument failed.  However, the petitioner also argued that the income should have been reported in 2008 which was a tax year now closed.  The petitioner reached that conclusion based on the instructions for Form 1099-C which create a rebuttable presumption that an identifiable event has occurred during a calendar year if a creditor has not received a payment on a debt at any time during a testing period ending at the close of the year.  The testing period is a 26-month period.  The last payment date on the loan was June 20, 2005, and the 36-month period expired on June 20, 2008.  The IRS bore the burden of proof under I.R.C. Sec. 6201(d) and was required to produce evidence of more than just receipt of Form 1099-C because the petitioner raised a reasonable dispute at the accuracy of the 1099-C and cooperated with the IRS.  Clark v. Comr., T.C. Memo. 2015-175.

 


When an internet domain name is acquired from the secondary market (where it is already constructed and where the taxpayer will maintain it) for use in the taxpayer's trade or business, the IRS has stated that the cost of the acquisition is to be amortized over 15 years for non-generic domain names - those specific to a company, and generic domain named - those not tied to a specific company.  The costs are to be capitalized under Treas. Reg. Sec. 1.263(a)-4.  Non-generic domain names are amortizable intangibles under Treas. Reg. Sec. 1.197-2(b)(10) or 1.197-2(b)(6).  Generic domain names are amortizable intangibles under Treas Reg. Sec. 1.197-2(b)(6).  The IRS did not provide guidance on the result if the domain name was purchased from someone not currently using the domain name.  That would also seem to be amortizable over 15 years via the safe harbor of Treas. Reg. Sec. 1.167(a)-3(b).  C.C.A. 201543014 (Sept. 10, 2015).  


The petitioners, a married couple, established an irrevocable family trust and transferred property worth $3.262 million to the trust.  The trust named 60 beneficiaries, primarily family members.  The trust language required the trustees to notify all beneficiaries of their right to demand withdrawal of trust funds within 30 days o receiving notice and directed the trustee to make distributions upon receipt of a timely exercised demand notice.  In addition, the trust allowed the trustee to make distributions for the health, education, maintenance or general support of any beneficiary or family member.  The trust also specified that a beneficiary would forfeit trust rights upon opposing distribution decisions of the trustees.  On separate gift tax returns for 2007 the petitioners each claimed annual gift tax exclusion of $12,000 (the maximums per done for 2007) for each of the 60 beneficiaries - $720,000 per spouse.  The IRS denied the exclusions on the basis that the gifts were not present interests because the trustees might refuse to honor a withdrawal demand and have the demand submitted to an arbitration panel (as established in the trust), and the beneficiaries would not seek to enforce their rights in court due to the trust language causing forfeiture if they challenged trustee decisions.  As such, the IRS held that the withdrawal rights of the beneficiaries was illusory and the gifts were not of present interests.  The Court disagreed with the IRS noting that merely seeking arbitration when a trustee breached fiduciary duties by refusing a demand notice did not make the gifts of future interests.  The court also held that the trust forfeiture language only applied to discretionary distributions and did not apply to mandatory withdrawal distributions.  In subsequent litigation, the Tax Court held that the IRS position was sufficiently justified to defeat the petitioners' claim for attorney fees.  Mikel v. Comr., T.C. Memo. 2015-64.  The subsequent litigation involving the fee issue is Mikel v. Comr., T.C. Memo. 2015-173.


The plaintiff owns and operates an oil refinery in Texas.  After a 2002 inspection of the facility, the Environmental Protection Agency (EPA) filed a criminal indictment against the defendant for Clean Air Act violations for failure to cover tanks with emission-control equipment, and for "taking" migratory birds in violation of the Migratory Bird Treaty Act (MBTA).  The trial court found the defendant guilty of three violations of the MBTA on the basis that liability under the MBTA could result irrespective of the defendant's intent simply based on proximate cause.  On appeal, the court reversed.  The appellate court applied the well-understood common law meaning of "take" (when not combined with "harass" or "harm") so as to preclude events that cause mere accidental or indirect harm to protected birds.  The court determined that the evidence did not show that the equalization tanks were utilized with the deliberate intent to cause bird deaths.  In so holding, the court rejected contrary holdings of the Second and Tenth Circuits on the issue.  The court also noted that an MBTA violation would not arise from bird collisions with electrical transmission lines, thus power companies would not need to seek an incidental take permit  from  the USFWS in the Fifth Circuit.  United States v. Citgo Petroleum Corp, et al., No. 14-40128, 2015 U.S. App. LEXIS 15865 (5th Cir. Sept. 4, 2015), rev'g. and remanding, 893 F. Supp. 2d 841 (S.D. Tex. 2012).


The IRS, with this private letter ruling, granted a surviving spouse (as executor) the right to make a late portability election for the amount of the deceased spouse's unused exclusion amount (DSUEA).  The IRS determined that it had discretion to allow a late election in this situation because the estate was not required to file Form 706.  The IRS has no discretion to allow a late election when the due date is set by statute as it is, for example, for estates that have a filing requirement due to being a taxable estate.  The IRS also noted that if it is later determined that the estate exceeded the amount required to file an estate tax return that portability would not be allowed because the IRS, in that situation, would be unable to grant relief.  Priv. Ltr. Rul. 201536005 (Jun. 4, 2015).


A debtor borrowed money from a lender and pledged dairy cattle as collateral.  The lender secured an interest in the cattle.  The debtor later borrowed additional money from the lender, pledging crops, farm products and livestock as collateral with lender's security interest containing a dragnet clause.  The lender secured its interest.  The debtor later entered into a "Dairy Cow Lease" with a third party to allow for expansion of the herd.  The third party lessor perfected its interest in the leased cattle.  The debtor filed Chapter 12 bankruptcy and the bankruptcy court determined that the lease arrangement actually created a security interest rather than being a true lease.  The court noted that the "lease"  was not terminable by the debtor and the lease term was for longer than the economic life of the dairy cows.  The third party lessor also never provided any credible evidence of ownership of the cows, and the parties did not strictly adhere to the "lease" terms.  The court noted that the lender filed first and had priority as to the proceeds from dairy cows.  In addition, the bankruptcy court held that the lender's prior perfected security interest attached to all of the cows on the debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b).   In a later action in the district court, a different creditor failed to comply with court’s order requiring posting of bond as a condition to stay the effect of the court’s prior ruling.  As a result, there was no stay in effect during pendency of the appeal and the lender was entitled to have the proceeds turned over to it.  A feed supplier creditor did not have standing to seek surcharge of the bank’s collateral under 11 U.S.C. Sec. 506(c).  The bankruptcy trustee did not file a motion for surcharge and court could not order the amount that the supplier paid for feed deliveries to be retained from funds turned over to the lender.  The lender's motion for abandonment and turnover of proceeds was granted.  On further review of the bankruptcy court's decision concerning the dairy cow lease, the appellate court reversed.  The appellate court determined that under applicable law (AZ) as set forth in the "lease" agreement, a fact-based analysis governed the determination of the nature of the agreement.  However, if the lease term is for longer than the economic life of the goods involved, the "lease" is a per se security agreement.  The bankruptcy court focused on the debtor's testimony that he culled about 30 percent of the cattle annually which would cause the entire herd to turnover in 40 months.  That turnover time of 40 months was less than the 50-month lease term.  Thus, according to the bankruptcy court, the lease was a security agreement.  The appellate court disagreed with this analysis, holding that the agreement required the focus to be on the life of the herd rather than individual cows in the herd because the debtor had a duty to return the same number of cattle originally leased rather than the same cattle.  Thus, the agreement was not a per se security agreement.  On the economics of the transaction, the appellate court held that the lender failed to carry its burden of establishing that the actual economics of the transaction indicated the lease was a disguised security agreement.  There was no option for the debtor to buy the cows at any price, and there was no option at all.  The court remanded the case to the bankruptcy court.  The cattle owned outright by the debtor were sold at auction by the bankruptcy trustee subject to the security interest of the bank.  The debtor had purchased the cattle with commingled funds from the bank's account which was sufficient for the bank's lien to attach and the court, on remand, determined that it was immaterial that the funds were later reimbursed by a third party under the lease.  Thus, the proceeds of the auction were subject to the bank's security interest and were the bank's property.  The leasing party's brand on the cows was not sufficient under state (KY) law to establish ownership of the cows because it was unregistered.  After-acquired livestock were also subject to the bank's lien, as being proceeds of the pre-petitioner lien.  In re Purdy, No. 12-11592(1)(12), 2015 Bankr. LEXIS 2938 (W.D. Ky.  Sept. 2, 2015), on remand from, Sunshine Heifers, LLC v. Citizens First Bank (In re Purdy), No. 13-6412, 2014 U.S. App. LEXIS 15586 (6th Cir. Aug. 14, 2014), rev'g., 2013 Bankr. LEXIS 3813 (Bankr. W.D. Ky. Sept. 12, 2013).

 


I.R.C. Sec. 6501(c)(9) says that if a gift tax return is required to be filed and is not filed, the IRS can collect the gift tax (with interest) at any time - the statute of limitations never runs.  In this matter, the taxpayer Filed Form 709 to report the transfer of partnership interests in two partnerships.  The Form 709 did not identify one of the partnerships involved and did not adequately describe the method used to determine the fair market value of both partnership interests.  Also, the employer identification number (EIN) used on both Form 709 and the valuation of gifts statement attached to the Form 709 was missing a digit.  The IRS noted that the appraisals valued the land held by each partnership rather than the value of the partnership interests that were transferred.  In addition, the Form 709 used incorrect, abbreviated names for the partnerships.  Based on these facts, the IRS determined that the gifts had not been adequately disclosed for failure to sufficiently describe the transferred property.  F.A.A. 20152201F (May 29, 2015).     


In this Field Attorney Advice from the IRS, the taxpayer loaned money against real estate that subsequently declined in value.  The real estate was foreclosed upon and the taxpayer lost money.  The taxpayer determined the loss in value of the remaining loans it held by estimating the date it expected to receive cash from the sale of the note or the sale of the real estate at foreclosure and then discounting that amount by the current appraised value to the present by using the discount rate of interest on the loan.  The IRS determined that a partial bad debt deduction was not allowed because Treas. Reg. Sec. 1.166-3(a)(2) requires the deduction be tied to an amount that is charged off during the year.  Here, the taxpayer had merely increased its reserve account for bad debts, which decreased its balance sheet assets.  It is insufficient to expect that some debts will be repaid at less than what the underlying note lists as the repayment terms.  An amount must actually be charged off.  F.A.A. 20153501F (Apr. 22, 2015).


The plaintiff, an electric power company, condemned a power line easement that bisected two tracts of the defendants (a married couple).  The easement occupied 12 acres out of 460.  The plaintiff offered the defendants $96,465 for the property taken.  On appeal, the trial court jury determined the property taken was worth $1,922,559.  The plaintiff appealed the jury award, claiming that the trial court erred by failing to exclude the defendants' expert testimony and that the trial court erred by allowing testimony as to a valuation approach that was not in accord with K.S.A. Sec. 26-513(e).  The court upheld the jury award because the defendants' first expert testimony, while not a valuation expert, laid a proper foundation for the testimony of the defendants' valuation expert.  The defendants' valuation expert approach did follow the statute and the trial court did not abuse its discretion in allowing the testimony.  The evidence was legally sufficient to support the jury's determination.  The trial court also did not err in allowing into evidence an option contract that had been entered into with a developer.  Kansas City Power & Light Company, No. 110,573, 2015 Kan. LEXIS 720 (Kan. Sup. Ct. Aug. 28, 2015).


As part of his job duties for the defendant, the plaintiff slipped while mopping up the bathroom floor of the defendant's facility and injured himself.  The defendant did not participate in the state's workers' compensation system (the state, TX, is the only state with a voluntary workers' compensation system for non-ag employment).  The premises "defect" was open and obvious to the plaintiff.  By opting out of the workers' compensation system, the defendant could not assert contributory negligence or assumption of risk as a defense.  The legal question presented was whether the defendant breached any duty of care to the plaintiff.  The U.S. Court of Appeals for the Fifth Circuit certified this question to the TX Supreme Court which determined that because there was no contention that the employee was unaware of the hazard involved and no other exception applied, the defendant was entitled to summary judgment.  However, the TX Supreme Court clarified that the premises liability claim was independent of the plaintiff's "necessary instrumentalities" claim  and that the defendant owed the plaintiff duties in addition to the premises liability duty.  Because the trial court did not consider whether the defendant provided the plaintiff with the necessary instrumentalities of his employment, the court remanded on that issue, but affirmed on the premises liability claim.  Austin v. Kroger Texas L.P., No. 12-10772, 2015 U.S. App. LEXIS 15312 (5th Cir. Aug. 28, 2015).


In this case, the petitioner sold his home and 80-acres of land on the installment basis for a gain of $657,796.  The petitioner calculated the gain by excluding $500,000 of gain attributable to the home sale exclusion of I.R.C. Sec. 121.  The buyers defaulted and the petitioner reacquired the property in full satisfaction of the debt.  The IRS claimed the petitioner had to recognize gain upon repossession to the extent of money and other property received before repossession, which would, in essence, recapture the Sec. 121 exclusion previously claimed.  The court agreed with IRS that the general rules of I.R.C. Sec. 1038 applied  and noted that the petitioner was actually in a better position than before the sale because he had received some payments for the sale before the buyer's default and recouped the property.  On appeal, the court affirmed.  The court noted that there are two types of gain involved on reacquisition of real estate in accordance with I.R.C. Sec. 1038(b)(1) - gain "returned as income" on a prior return, and gain not yet "returned as income."  Here, the court noted that the petitioner had reported $56,920 as income.  The petitioner had not reported the $500,000 of gain attributable to the house, thus it was not "returned as income" on a prior return.  Thus, by failing to resell the property within a year, the petitioner recognizes $505,000 received in cash, less the $56,920 already recognized as income.  Debough v. Comr., 142 T.C. No. 17 (2014), aff'd.,No. 14-3036, 2015 U.S. App. LEXIS 15194 (8th Cir. Aug. 28, 2015).


The plaintiff filed  a Freedom of Information Act (FOIA) request with the IRS to determine whether the Obama White House had sought private taxpayer information from the IRS after the White House had made remarks on the tax status of Koch Industries (a private company).  The IRS refused to release any information, citing Internal Revenue Code Sec. 6103 which bars the IRS from divulging tax return information and divulging requests for taxpayer information.  The plaintiff then sued and the court disagreed with the IRS position, denying IRS' motion to dismiss the case.  The court held that I.R.C. Sec. 6103 does not allow IRS to shield records that might indicate that the White House misused confidential taxpayer information or that White House officials made an improper attempt to access that information.  Cause of Action v. Internal Revenue Service, No. 13-0920, 2015 U.S. Dist. LEXIS 114203 (D. D.C. Aug. 28, 2015).


The day before the effective date of the Environmental Protection Agency’s Clean Water of the United States (WOTUS) rule (Fed. Reg. 37,054-127,), a federal judge issued a preliminary injunction to stop the EPA and the U.S. Army Corps of Engineers from enforcing it. The court determined that the plaintiffs (multiple states) were substantially likely to succeed on the merits or had at least a fair chance to succeed.  The court stated that the evidence showed that it was likely that the EPA has violated its Congressional grant of authority when it developed the rule and also failed to comply with the Administrative Procedure Act requirements.  The court noted that a broad segment of the public would benefit from the preliminary injunction because it would ensure that federal agencies do not extend their power beyond the express delegation from Congress. A balancing of the harms and analysis of the public interest revealed that the risk of harm to the States was great and the burden on the EPA was slight.  The injunction was requested by States of North Dakota, Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, South Dakota, and Wyoming, and the New Mexico Environment Department.  The EPA immediately took the position that the injunction applies only to those states that sought the injunction. The old rule, the agency said, will be applied in those states. The new rule, however, will be applied by the EPA and the U.S. Army Corps in the remaining states beginning effective August 28, 2015.  North Dakota, et al. v. United States Environmental Protection Agency, No. 3:15-cv-59, 2015 U.S. Dist. LEXIS 113831 (D. N.D. Aug. 27, 2015).

 


The plaintiff sells grapevine rootstock and challenged the mandatory assessments it must pay to the California Rootstock Improvement Commission to help fund research for pest-resistant and drought-resistant rootstock.  The plaintiff challenged the mandatory assessment as an unconstitutional exercise of the state's police power that violated the plaintiff's liberty interests and due process rights under the U.S. and California constitutions.  The plaintiff had the ability to conduct its own research for it own competitive advantage and claimed it had a right to refuse to help fund research that benefits its competitors and the industry as a whole.  The trial court upheld the mandatory assessment and the appellate court agreed.  The appellate court determined that the Commission was properly created for the public benefit and that a university researcher at UC Davis did not dupe the legislature and the grape rootstock industry into creating the Commission for the researcher's benefit.  The court found that the evidence did not support the plaintiff's conspiracy claims and that the law creating the Commission and the assessment was constitutionally valid.  Duarte Nursery, Inc. v. California Grape Rootstock Improvement Commission, et al., No. C071578, 2015 Cal. App. LEXIS 735 (Cal. Ct. App. Aug. 25, 2015).


The petitioner resided in Hawaii with his common law wife.  He claimed a dependency deduction for her as she was listed as his common law wife on their return.  The IRS stipulated to an "affidavit of dependency" that she signed in which she said that during the tax year in question that she lived in the petitioner's home, had gross income of less than $3,500, and that the petitioner provided more than 50% of her support.  The court accepted the affidavit as evidence of the petitioner being entitled to the dependency deduction.  Shimanek v. Comr., T.C. Memo. 2015-165.


The petitioners, a married couple, was deemed not be in the real estate sales business with a profit intent for the years at issue based on an analysis of multiple factors.  The court also determined that the petitioners did not substantiate their expenses for their deductions claimed on Schedule C.  Pouemi v. Comr., T.C. Memo. 2015-161.


The petitioner received payments under a divorce agreement and claimed that they constituted alimony.  However, the payments were not terminated upon death as required by I.R.C. Sec. 71(b)(1)(D).  Thus, the payments did not constitute alimony.  Crabtree v. Comr., T.C. Memo. 2015-163.


The decedent made taxable gifts during life, but failed to pay the associated gift tax.  Upon death, the estate did not pay the gift tax either.  The IRS claimed that the donees of the gifts owed the gift tax and interest on the gifts.  The donees argued that the interest on the gift tax was limited to the value of the gift to any particular done under I.R.C. Sec. 6324(b).  The court agreed that the interest on the gift cannot exceed the amount of the gift.  United States v. Marshall, No. 12-20804, 2015 U.S. App. LEXIS14584 (5th Cir. Aug. 19, 2015), aff'g in part and rev'g in part, In re Marshall, 721 F.3d 1032 (9th Cir. 2013) and withdrawing 771 F.3d 854 (5th Cir. 2014).


The petitioner and wife bought an annuity in 2003 with proceeds they received from selling securities that triggered a $158,000 capital loss.  The annuity was purchased for $228,800 and additional contributions of $346,154 were made through 2006.  In 2007, the petitioner entered into an I.R.C. Sec. 1035 exchange for a different annuity with a start date of Feb. 3, 2047.  In 2010, the petitioner and wife withdrew $525,000 from the annuity to buy their current home.  At the time of the withdrawal, the cash value of the annuity was $761,256 with accrued earnings of $186,302.  The petitioner was issued a Form 1099R showing a taxable distribution of $186,302.  The petitioner did not report the taxable amount of the distribution, claiming instead that the income on the contract arose from capital gains incurred in the annuity that offset the capital loss and also because they hadn't made any money on the contract.  The court upheld the IRS position that the petitioner had "earned" $186,302 on the invested funds.  The court also imposed a 10 percent early withdrawal penalty and a 20 percent accuracy related penalty.  Tobias v. Comr., T.C. Memo. 2015-164.


The petitioner was a sole proprietor landscaper that claimed an interest expense deduction on Schedule C.  IRS denied the deduction and the court agreed.  The petitioner failed to show a business purpose for the loans at issue, and his logs were not credible because they didn't show the purpose of the travel, time spent or amount of expense.  Ocampo v. Comr., T.C. Memo. 2015-150.

 


I.R.C. Sec. 6035 was added to the Code by the Surface Transportation and Veterans Health Care Improvement Act of 2015 (STVHCIA).  Section 6035 specifies that a decedent's estate that is required to file Form 706 after July 31, 2015, must provide basis information to the IRS and estate beneficiaries by the earlier of 30 days after the date Form 706 was required to be filed (including extensions, if granted) or 30 days after the actual date of filing of Form 706  However, the STVHCIA allowed IRS to move the filing deadline forward and the IRS did move the date forward to February 29, 2016 for statements that would be due before that date under the 30-day rule contained in the STVHCIA.  IRS stated that executors and other persons are not to file or furnish basis information statements until the IRS issues forms or additional guidance.  Relatedly, the STVCIA modifies I.R.C. Sec. 1014(f) to require beneficiaries to limit basis claimed on inherited property to either the value of the property as finally determined for federal estate tax purposes, or the value reported to the IRS and beneficiary under I.R.C. Sec. 6035.  I.R.S. Notice 2015-57. 

 


In 2003, an LLC bought oil and gas properties from another corporation and asked the corporate executives to manage the wells.  The executives, which included the defendant, founded a limited partnership to manage exploration and production of the properties.  The LLC loaned made a $6 million non-recourse loan to the LP for working capital.  Ultimately, the LP wound up with a 20 percent interest in the sale revenue after the LLC recovered expenses and had a 10 percent return on investment.  the LP partners limited tied their salaries to profits such that if the LLC earned nothing the partners did not have any profit.  The LP arranged for the LLC to sell the properties with the LP's interest being approximately $20 million which it reported as ordinary income.  Two years later, the LP filed an amended return reporting the $20 million as capital gain resulting from the sale of a partnership interest.  Amended K-1s were issued to the partners, including the defendant.  IRS issued refunds, but then later changed its mind and asserted that the income ordinary in nature as compensation for services rendered.  The issue before the court was whether the LP had a profits interest for services, or whether the relationship with the LLC meant that the arrangement was compensation for services provided in arranging the sale of the oil and gas properties (i.e., a commission for sale).  The IRS claimed that a partnership did not exist for tax purposes because the entity agreement disclaimed the existence of a partnership, the LLC contributed the funds and controlled the funds, owned the assets and the LP was not at risk.  The IRS also argued that the LP was a mere contract employee.  The LP claimed that it was a partnership for tax purposes and that it had exchanged the partners time and talent for a profit share.  The court determined that the LP was a partnership for tax purposes based on the objective facts of the parties' relationship and ownership interest in the value of the oil and gas operation.  Thus, because a partnership interest is a capital asset, the resulting income from the sale is capital gain.  The IRS did not argue that the LP partners had actually received a partnership interest for services which would result in ordinary income when the interest was issued.  United States v. Stewart, et al., No. H-10-294, 2015 U.S. Dist. LEXIS 110055 (S.D. Tex. Aug. 20, 2015).         


Nine years after the purchase, the plaintiffs claimed that they purchased defective windows.  The plaintiffs tried to recover the replacement cost of the windows.  The plaintiffs claimed that the defendant breached an implied warranty of merchantability and the warranty of fitness for a particular purpose.  The plaintiff also sued the supplier for breach of an express limited warranty.  The trial court dismissed the claim against the supplier as time-barred.  On appeal, the plaintiffs claimed that the statute of limitations was not triggered until the problem with the windows was discovered.  However, the court pointed out that Iowa Code Sec. 554.2725(2) applies the "discovery rule" only to a warranty that explicitly extends to future performance of the goods.  Here, the court noted that the allegation was that the supplier only provided implied warranties.  As such, the statute of limitations was tolled at the time of delivery.  The court affirmed the trial court decision.  Kopp v. American Builders & Contractors Supply Co., Inc., No. 14-1868, 2015 Iowa App. LEXIS 770 (Iowa Ct. App. Aug. 19, 2015). 


The plaintiff owns mineral rights on 3,250 acres, the surface of which is owned by a third party.  The defendant is the lessee on minerals under property adjacent to the 3,250-acre tract.  Because the defendant's lease bars the defendant from accessing the minerals without consent, the defendant accesses the minerals from off-site drilling locations via horizontal drilling.  The defendant entered into an agreement with the surface owner of the 3,250 acres to drill wells on the surface of the tract to produce oil from the minerals it had an interest in under the adjacent tract.  The plaintiff sued to bar the drilling through the subsurface of the 3,250 acres to reach their mineral interest by claiming that the defendant was trespassing and had interfered with the plaintiff's business relations.  The defendant claimed that no trespass occurred because it had received the surface owner's permission to horizontal drill.  The trial court agreed with the defendant.  On appeal, the court affirmed on the basis that the surface owner controls the earth beneath the surface estate.  The court noted that the mineral owner is entitled to a fair chance to recover the oil and gas in or under the surface estate, but does not control the "mass that undergirds the surface of the conveyed land" absent an agreement to the contrary.  Lightning Oil Co. v. Anadarko E&P Onshore LLC, No. 04-14-00903-CV, 2015 Tex. App. LEXIS 8673 (Tex. Ct. App. Aug. 19, 2015).


The plaintiff sold a six acre tract of land to the defendant.  After obtaining possession, the defendant obtained a commercial disposal permit for the tract and drilled a commercial disposal well.  The plaintiff claimed that the defendant had orally represented before the sale that the defendant would use the property as an equipment yard to store pipe and other oilfield equipment, and that the property would not have been sold had the plaintiff known that a commercial disposal well was going to be drilled on the property.  The plaintiff claimed damages as a result of the alleged fraud.  The court refused to rescind the contract, finding that the plaintiff failed to establish a material misrepresentation and that the negotiation was at arm's-length and the defendant was not notified of any objection the plaintiff might have concerning particular uses of the property.  The court noted that the plaintiff could have protected its interests by including a use restriction in the contract for deed and the deed, but failed to do so.  Stinson Farm and Ranch, L.L.C. v. Overflow Energy, L.L.C., No. CIV-14-1400-R, 2015 U.S. Dist. LEXIS 108661 (W.D. Okla. Aug. 18, 2015).


The defendant has been a lifelong farmer and farms land within the borders of the plaintiff town.  The defendant's farmland is near a federal wildlife refuge beset with large numbers of blackbirds that feed on his crops until they migrate for winter.  Consequently, the defendant's father utilized scare guns on the property beginning in 1962, and the defendant continued their use.  The defendant did not receive any complaints until a neighbor complained in 2011.  In 2013, the plaintiff enacted an ordinance requiring permits for the operation of scare guns and specifying that such guns can only be operated between 6 a.m. and 8 p.m. and only between July 1 and October 1 of any given year.  In addition, the ordinance specified that scare guns cannot be operated within 300 feet of any residence not owned or occupied by the permittee absent written consent, and all scare guns must be pointed at least 45 degrees away from neighboring property lines.  The defendant applied for a permit and received one, but was later cited for violating the ordinance by operating a scare gun at an angle of less than 45 degrees from a neighboring property line.  The defendant pled not guilty and also argued that the ordinance was invalid for violating a vested right to use scare guns on his property, and also because the ordinance violated the state Right-To-Farm law and because it was enacted without the approval of the county board.  The court denied the defendant's motion to dismiss, and determined that while the defendant had a vested right to farm his property, the defendant had no vested right to utilize a particular farming practice, such as scare guns.  The court also determined that the ordinance did not constitute a regulatory taking because the ordinance did not deprive the defendant of all or substantially all of the beneficial use of his property.  A reduction of yield, even if substantial, does not meet that standard.  The permit required is also not a land use permit and, as such, did not conflict with the county's comprehensive zoning ordinance.  The state right-to-farm law did not preempt the ordinance as that law only applies to nuisance actions and does not bar local regulation of agricultural activity.  The court also determined that the ordinance was not arbitrary.  Town of Trempealeau v. Klein, No. 2014AP2719, 2015 Wisc. App. LEXIS 608 (Wisc. Ct. App. Aug. 18, 2015). 


The defendants (married couple) wanted to establish a small cattle feedlot on 27 acres.  The proposed feedlot was subject to various land-use ordinances and they needed to obtain a conditional use permit (CUP) from the city zoning administrator in the nearby town who would then forward the application to the joint planning board which would make a recommendation to the county board who would then make a final decision.  The plaintiffs filed an application for a CUP and the joint planning board recommended approval with various conditions.  A public hearing was held and numerous neighbors objected to the CUP being granted.  The CUP was approved with the conditions, and various nearby landowners appealed on the basis that the application was incomplete, the board failed to consider public opposition, and because existing regulations barred a new feedlot in the area.  The court disagreed, holding that oral discussions concerning the missing information on the application were sufficient such that the board did not act unreasonably or arbitrarily in granting the permit.  The court also determined that other land-use restrictions did not apply.  Loncorich, et al. v. McLeod County Board of Commissioners, et al., No. A14-1734, 2015 Minn. App. Unpub. LEXIS 820 (Minn. Ct. App. Aug. 17, 2015).


The plaintiff bought a 20-acre rural tract that was zoned for agricultural use.  The plaintiff built a fenced-in arena on the tract for horseback-mounted shooting events and began holding trainings and competitions.  Upon receiving complaints, the zoning department investigated and determined the property usage was a nonconforming use.  The plaintiff applied for a conditional use permit (CUP), and the planning commission recommended a conditional CUP.  However, the township board denied the CUP due to negative impact and noise.  The planning commission sought public comment at a public hearing, and the zoning department filed a report recommending a CUP with conditions.  Neighbors provided negative testimony at the hearing.  The county board denied the CUP and the plaintiff sought judicial relief.  The court upheld the board's denial based on the impact the plaintiff's activities would have on the neighborhood and criteria listed in the county zoning ordinances.  The court determined there was sufficient factual basis to deny the CUP and that the effect of noise could be considered even though it did not exceed noise standards.  The court also held that the board was authorized to rely on observations of individual neighbors.  August v. Chisago County Board of Supervisors, No. A14-1475, 2015 Minn. App. LEXIS 63 (Minn. Ct. App. Aug. 17, 2015).


The IRS declined to determine whether the subsidiary of a taxpayer was an eligible agricultural business in the trade or business of distributing specified agricultural chemicals under I.R.C.  Sec. 450(e)(2).  The IRS determined that the issue was inherently factual.  Tech. Adv. Memo. 201532034 (May 13, 2015).


I.R.C. Secs. 6426(a) and (c) allow a taxpayer that blends biodiesel to claim a $1/gallon credit under I.R.C. Sec. 4081.  Also, I.R.C. Sec. 6426(e) provides for a $.50/gallon credit for a taxpayer that blends alternative fuel.  The credits expired for sales and uses after 2013, but TIPRA of 2014 extended them through 2014.  In this Notice, the IRS specified that taxpayers claiming the credits submit all claims for 2014 biodiesel and alternative fuel credits on a single Form 8849.  To the extent the credits reduce the claimant's fuel tax liability, the credits produce an income tax addback by reducing the excise tax deduction that the taxpayer can claim as part of its cost of goods sold or any other relevant tax income tax deduction.  That addback is to be done on a quarterly basis in accordance with the biodiesel or alternative fuel mixture sold or used during the quarter.  The credits are treated for 2014 as if they had never expired.  IRS Notice 2015-56, IRB 2015-35.


The plaintiff was criminally charged with violating the defendant's municipal ordinance banning horses from residential property.  An initial complaint against the plaintiff was triggered by neighbors complaining of excessive manure from a horse and other animals on the plaintiff's property.  Ultimately, the plaintiff removed all of the farm animals from her property except one miniature horse which she kept as a service animal for her disabled minor daughter.  In early 2013, the defendant passed an ordinance which amended the defendant's municipal code to "prohibit the keeping of farm animals at residences within the city."  The ordinance specifically applied to horses except where authorized by federal, state or local law.  The plaintiff, after a complaint was made anonymously, was asked to remove her horse from the property.  The plaintiff complied, but the horse later reappeared at the plaintiff's property.  The plaintiff was cited for the ordinance violation and fined.  The plaintiff was tried on both citations and defended herself on the basis that the Americans with Disabilities Act (ADA) and the Fair Housing Amendments Act (FHAA) allowed her to keep the horse for her daughter's therapy as a service animal.  The plaintiff moved to dismiss the citations, which the Municipal court denied and found the plaintiff guilty on both citations.  The Municipal court did not impose a fine for either conviction and the plaintiff did not appeal.  The plaintiff then later sued the defendant for alleged violation of her rights under the ADA and the FHAA, and that the 2013 ordinance was enacted with animus against her daughter in violation of the ADA and the FHAA.  The defendant moved for summary judgment, and the trial court granted the motion on the grounds that the plaintiff's claims were barred by claim and issue preclusion based on her Municipal Court convictions.  On appeal, the court reversed.  The appellate court said the Municipal court proceedings had no preclusive effect.  While the court held that there was no evidence that the defendant's actions were motivated by discriminatory intent against the plaintiff's daughter, there remained significant factual disputes regarding whether the ADA or FHAA allowed the defendant to keep the miniature horse.  Anderson v. City of Blue Ash, No. 14-3754, 2015 U.S. App. LEXIS 14293 (6th Cir. Aug. 14, 2015).   


The plaintiffs, a hog farmer and two activist groups with hog farmers as members claimed that the National Pork Board (NPB) misappropriated funds raised via the Pork Checkoff (assessed at the rate of $.40 per $100 value of pigs sold or when pigs or pork products are imported into the U.S.).   The NPB is a quasi-governmental entity  that administers the "Pork Order" which implements the Pork Act (7 U.S.C. Sec. 4801-19) which is designed to promote pork in the marketplace.  The NPB conducts, among other things, consumer information campaigns designed to stimulate pork product sales.  In 2006, the NPB bought four trademarks associated with the slogan "Pork:  The Other White Meat" from the National Pork Producers Council for $60 million, to be paid in annual installments of $3 million for 20 years.  The NPB can terminate the payments at any time with a year's notice with the ownership of the phrase then reverting to the NPPC.  In 2011, the NPB replaced the slogan with a new motto, "Pork:  Be Inspired."  The NPB retained the initial slogan as a "heritage brand" but does not feature it in its advertising.  The plaintiffs claimed that the NPB bought the slogan with the purpose of funding the NPPC to keep it in business and support the NPPC's lobbying efforts in violation of the Pork Act, that the NPB overpaid for the slogan and that the new slogan makes the initial one worthless.  The plaintiffs sued the USDA under the Administrative Procedure Act (APA) seeking to enjoin the NPB from making further payments to the NPPC and directing the USDA to "claw back" any payments possible from the deal.  The trial court dismissed the case for lack of standing.  The court determined that the hog farmer plaintiff could not show any injury in fact, and that the activist organizations could not sue in their own right or on behalf of their hog-producer members.  On appeal, the court reversed.  The court reasoned that the hog farmer had standing because he formulated a "concrete and particularized" injury via his return on investment being diminished by the annual $3 million payments and that he alleged facts that plausibly showed that the mark was worth less than $60 million, and that the NPB's purchase of the slogan was not negotiated at arm's length and that the NPPC and the NPB are intertwined with the NPPC lobbying for passage of the Pork Act and proposing the text that serves as the foundation for the Pork Order.  In addition, the NPPC was instrumental in developing the initial slogan.  A 1999 report USDA Inspector General Audit concluded that the NPB had put the NPPC in a position to exert undue influence over NPB budgets and grant proposals.  In addition, the hog farmer plaintiff also alleged facts that plausibly showed that the initial slogan is no longer worth $3 million annually.  The court did not rule on whether the other plaintiffs had standing.  The court also refused to uphold dismissal of the case for failure to exhaust administrative remedies because the plaintiffs merely wanted to make the USDA Secretary comply with the Pork Act and Order.  The court remanded the case.  Humane Society of the United States, et al. v. Vilsack, No. 13-5293, 2015 U.S. App. LEXIS 14271 (D.C. Cir. Aug. 14, 2015).   


The debtor filed Chapter 12 bankruptcy and a bank, as a creditor, held security interests in the debtor’s livestock, crops and equipment.  The bank sought relief from the automatic stay, which was granted.  The debtor, with the bank’s permission, sold the livestock and equipment to a third party with the sale proceeds paying off the secured debt.  A similar arrangement was engaged in by another creditor with the sale being to the same buyer.  The bankruptcy court did not grant prior approval of the sales.  The debtor sought to avoid the sales under 11 U.S.C. Sec. 549, and the buyer motioned for summary judgment on the basis that the debtor lacked standing to sue for lack of injury insomuch as the debtor benefitted from the sales.  The court allowed the debtor’s case to proceed on the basis that the buyer had not completely showed that the sales didn’t injure the debtor or the debtor’s bankruptcy estate.  In re Johnsman Limited Partnership, No. 12-33368, 2015 Bankr. LEXIS 2702 (Bankr. N.D. Ohio Aug. 13, 2015).


A partnership can consent to allow the IRS to extend the statute of limitations by signing Form 872-P.  Normally, the Form would have to be signed by a designated tax matters partner.  However, in this case, the signer was no the designated tax matters partner.  The court held that the signature was effective to allow the statute of limitations to be extended because the signer had apparent authority and the IRS was reasonable in believing that the signer had the authority to act on the partnership's behalf.  The signed had also signed the partnership's tax return and was a managing member.  Summit Vineyard Holdings, LLC, et al. v. Comr., T.C. Memo. 2015-140.


The petitioner, a lawyer who practiced tax law, donated a permanent conservation easement on 80 percent of a 74-acre parcel to a qualified land trust.  The land was subject to a mortgage at the time of the donation and the mortgage was not subordinated until two years after the petitioner received a statutory notice of deficiency from the  IRS.  The petitioner argued that the state (ID) Uniform Conservation Easement Act protected the charitable use of the property, but the Tax Court noted that the Act would have only protected whatever interest remained after the lender was satisfied.  The Tax Court noted that the subordination agreement had to be in place at the time of the grant of the conservation easement.  The Tax Court upheld the imposition of a negligence penalty.  The appellate court affirmed.  The court held that Treas. Reg. Sec. 1.170A-14(g)(2) clearly required the subordination agreement to be in place at the time of the easement grant for the donor to claim a tax deduction for the value of the contributed easement.  The court noted that an easement cannot be deemed to be "in perpetuity" if it is subject to extinguishment at essentially any time by a mortgage holder who was not party to or aware of the agreement between the taxpayer and the donee.  Minnick, et al. v. Comr., No. 13-73234, 2015 U.S. App. LEXIS 14097 (9th Cir. Aug. 12, 2015), affn'g., T.C. Memo. 2012-345.     


In response to increased identity fraud instances, the IRS has announced that it is shortening the time period for extending certain information returns by eliminating the automatic 30-day extension option that is available for Form W-2s.  IRS will adopt a single non-automatic extension.  The IRS has removed Treas. Reg. Sec. 1.6081-8 and is adding Temp. Treas. Reg. Sec. 1.6081-8T.  The IRS has also published proposed regulations that would make permanent the changed contained in Temp. Treas. Reg. Sec. 1.6081-8T.  The new rule will also apply in the future to other information returns.  The new rule is effective for Forms W-2 due after 2016, and other information returns due on or after January 1 of the year the regulations are adopted as final, or if later, those due on or after January 1, 2018.  T.D. 9780.


The petitioner operated a medical marijuana dispensary in West Hollywood, CA.  Federal Drug Enforcement Agency agents raided the dispensary and seized $600,000 worth of marijuana.  The petitioner, for the year at issue, reported $1,700,000 of gross sales and $1,429,614 in cost of goods sold.  The petitioner is entitled to deduct the cost of goods sold, but cannot deduct any other operating costs.  The petitioner claimed to have included the $600,000 amount in both gross sales and cost of goods sold.  However, the petitioner could not substantiate any of the income or deduction items and was not entitled to reduce his reported sales amount by the $600,000 he included in cost of goods sold.  In addition, the petitioner could not claim an I.R.C. Sec. 165 loss for the seized marijuana because I.R.C. Sec. 280A bars a deduction for any amount incurred in connection with trafficking in a controlled substance.  The court upheld the imposition of an accuracy-related penalty.  Beck v. Comr., T.C. Memo. 2015-149.


The petitioner listed his business on his tax return as "World Travel Guide" and showed a net business loss of $39,138.  As he traveled, the petitioner blogged about his travels and hoped to profit from income generated via affiliate sales from the blog.  When that didn't pan out, the petitioner shifted to writing books about his travels.  The IRS disallowed the loss under the hobby loss rules of I.R.C. Sec. 183.  The court agreed with the IRS, noting that the petitioner did not maintain books or records, had no written business plan, no estimate as to when his website would be operational or when he would begin to earn money from the activity.  Pingel v. Comr., T.C. Sum. Op. 2015-48.


The petitioner, a schoolteacher, also owned and managed various real estate rental properties on which he lost money in 2005-2007.  The petitioner claimed the losses were fully deductible because he satisfied the tests to be a real estate professional contained in I.R.C. Sec. 469(c)(7)(B) - more than fifty percent of his personal services for the years in question were spent in real property trades or business and he spent more than 750 hours each year in rental activities.  While the petitioner's logs showed that he satisfied both tests, the court found the logs to not be credible.  The petitioner did not include any "off-site" time as his teacher hours, and exaggerated his time on rental activities, including work for certain days on rental activities exceeding 24 hours.  Escalante v. Comr., T.C. Sum. Op. 2015-47.


The petitioner was an accountant that provided tax return preparation services to clients.  In addition to an office in town, the petitioner also met with clients at their businesses or homes and then did accounting work for them out of her residences.  For the years in issue, the petitioner rented out one residence to a friend and also occasionally stayed there overnight.  The petitioner claimed business-related deductions for both of her homes which the IRS denied.  The court upheld the IRS position on the basis that the taxpayer did not satisfy the principal place of business test and also because the petitioner did not use the home as a place to meet clients or customers and did not have a separate structure or part of the home set aside for business use.  Instead, the taxpayer had an office in town - another fixed location where she could perform substantial administrative or management activities.  The court also disallowed deduction for alleged business autos on the grounds that the petitioner could not show that she either owned or leased the vehicles in question.  Sheri Flying Hawk v. Comr., T.C. Memo. 2015-139.


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